FPTA: ‘China Plus One Strategy’ to Benefit India due to its Demographics, Low Cost, and a Strong Domestic Market - Papermart
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FPTA: ‘China Plus One Strategy’ to Benefit India due to its Demographics, Low Cost, and a Strong Domestic Market

2021: The year that was

Mr. Deepak Mittal, President, Federation of Paper Traders’ Associations of India (FPTA)

The year 2021 brought mixed results for the domestic players. Last year saw prices moving northwards in spurts and therefore, increasing the top-line and making the bottom line healthier. In spite of the impact of the second wave of COVID-19 felt by the domestic players, the overall demand picked up except for the writing and printing grades. It is noteworthy to mention that for the first time in the history of Indian paper manufacturing, exports from India overtook the imports in both quantum and monetary terms.

The domestic paper industry is firing on two engines, the conventional and the new economy. The coming years will see an upsurge in capital expenditure across various grades. A generation of new entrepreneurs has firmed up plans in bringing in record new and additional capacities.

2022: The year that will be

India’s current demand is estimated at approximately 20 million tonnes per annum and the expected growth rates are likely to be 6–8 percent per annum. Hence, the industry will need to add approximately 1.5 million tonnes per annum to meet the growing needs of paper & paperboards.

The industry is likely to witness a demand boom in months ahead as and when the impact of COVID wanes away and all economic, business and educational activities slowly reach their normal levels.

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After many years, the industry is likely to face a situation where demand will be exceeding supply as capacity addition is lagged primarily due to disruption in the environment on account of COVID.

Prices of packaging grades have already moved northwards, whereas the supplies are still under pressure due to increased exports. The demand for packaging grades is already running at much above the pre-COVID levels while the prices of writing & printing grades, though firm, are still on shaky ground. Availability is not an issue for the moment. There has been a slowdown of demand due to the educational institutions remaining closed, business establishments being partially open, and largely operating remotely from home. Lack of interest in paper-based year-end gift articles has taken away some shine from the demand.

But this seems temporary and things are likely to change very quickly with most parts of the countries gradually opening up. The state governments have given a go-ahead for the educational institutions to open up (the scholastic sector contributes approximately 60 percent to the total demand for writing & printing paper).

Also Read: 2022: Trends Transforming the Paper Industry

Key trends driving the growth

The conversion from plastic to paper is going to be the single biggest megatrend over the next decade for the paper industry as the paper is the most eco-friendly alternative to plastic. Also, ‘China plus one strategy’ of the world is immensely going to benefit India as India remains to be the natural beneficiary of this scenario due to its demographics, low cost, and strong domestic market. With China clamping down on polluting industry, there is going to be a shift of paper manufacturing from China to other developing countries like India, Vietnam, and Indonesia among others.

The only major challenge which I foresee for the domestic paper industry is the availability of raw-material in sufficient quantity and at globally competitive prices. India is a fiber deficient country whether it is wood, agricultural residue, or recycled fiber/waste paper. Since the raw material is a major cost component of the production of paper, this single factor adversely impacts the cost competitiveness of the Indian Industry as compared to other competing countries.

The paper trade in the last year went through a very rough patch and is still reeling under that pressure. Businesses were impacted due to low demand, frequent price increase, breaks in supply chain and logistics, increased investments, high unrealised credit, increased non-performing assets, lack of government and banking support, increased expenditures on health, unforeseen forced closure for a lengthy period of time, all leading to reduced volumes and increased expenditure. Margins remaining constant were under pressure and over-reduced volumes, which impacted the bottom line of the traders to a large extent.

The paper trade has been a less celebrated segment of the Indian distributive and retail sector. However, the economic and social importance of the trader is unique. The estimated turnover of the 6,000 plus strong trader is around INR 70,000 crores. The trade provides direct employment to 25,000 people and indirectly to around 1,00,000. The trade supports the vital national objectives of education, employment generation, and availability of goods for all.